Auditing and Ethics · Completion and Review

Subsequent Events under SA 560

Updated 5 October 2026

Subsequent events are events that occur between the date of the financial statements and the date of the auditor's report. SA 560 also deals with facts that become known to the auditor after the report date. You identify events, judge their effect, and ask management to adjust or disclose them. Otherwise you modify your opinion.

Understand Subsequent Events under SA 560

Financial statements show the position on one date, such as 31 March. The auditor signs the report weeks later. Things can happen in this gap. A customer may go insolvent, a fire may destroy stock, or a court may decide a case. SA 560 tells you what to do about them.

SA 560 deals with events that occur between the date of the financial statements and the date of the auditor's report, and with facts discovered after the report date. It splits time into three periods. Period 1 is from the date of the financial statements to the date of the auditor's report. Period 2 is after the auditor's report date but before the financial statements are issued. Period 3 is after the financial statements are issued. Your duty is different in each period.

The date of the financial statements is the balance sheet date. The date of the auditor's report is the date you sign. Under SA 700 (Revised), it must not be earlier than the date on which you have obtained sufficient appropriate evidence. The date the financial statements are issued is when the report and financial statements are made available to third parties.

Events are of two types. Adjusting events give evidence of conditions that existed at the balance sheet date, so you change the amounts. Example: a customer's insolvency after year-end confirms that the debt was already bad. Non-adjusting events arise from conditions after the balance sheet date, so you only disclose them if they are material. Example: a fire after year-end destroys the warehouse.

The adjusting versus non-adjusting treatment comes from the applicable financial reporting framework, not from SA 560 itself. For entities following the Accounting Standards, it comes from AS 4 (Events Occurring After the Balance Sheet Date). For entities following Ind AS, it comes from Ind AS 10. Check which framework the question states.

In period 1 the auditor has an active duty to perform procedures. In periods 2 and 3 the auditor has no duty to perform further procedures, but must act if a fact comes to knowledge that would have changed the report.

Key rules to remember

Period 1: events up to the auditor's report date: Date of financial statements → Date of auditor's report; Auditor must perform procedures to identify all events needing adjustment or disclosure, and evaluate whether they are properly reflected.
Period 2: facts known after report date, before issue: Date of auditor's report → Date financial statements are issued; Auditor has no obligation to perform procedures. But if a fact becomes known that would have caused the report to be amended, the auditor must discuss the matter with management and, where appropriate, those charged with governance. The auditor determines whether the financial statements need amendment. If they do, the auditor also inquires how management intends to address the matter in the financial statements. If the financial statements are amended, the auditor audits the amendment and gives a new or amended report. That report is dated no earlier than the date the amended financial statements are approved. If the amendment is limited to one matter, the auditor may dual date the report for that matter. The auditor may request management, through the engagement terms or written representations, to inform the auditor of facts arising between the report date and the issue date. This is a request by the auditor, not a duty set out in SA 560.
Period 3: facts known after issue of financial statements: After date financial statements are issued; No obligation to perform procedures. If the auditor becomes aware of a fact that would have caused the report to be amended, the auditor discusses it with management and, where appropriate, those charged with governance, and determines whether the financial statements need amendment. If they do, the auditor also inquires how management intends to address the matter in the financial statements. If they are amended, the auditor audits the amendment and issues a new or amended report on the amended financial statements. Management must ensure that anyone who received the earlier financial statements is informed of the position. The new or amended report must include an Emphasis of Matter or Other Matter paragraph that refers to the note to the financial statements explaining the reason for the amendment and to the earlier report. If management does not act, the auditor takes appropriate steps to prevent reliance on the report.
Adjusting event: Evidence of condition existing at the balance sheet date → adjust amounts; Example: settlement of a court case confirming an obligation existing at year-end.
Non-adjusting event: Condition arising after the balance sheet date → disclose if material; Example: major acquisition or loss by fire after year-end.
Auditor's report date rule (SA 700 (Revised)): Report date ≥ date of sufficient appropriate evidence and approval of financial statements by those with authority; Under SA 700 (Revised), the report cannot be dated before the financial statements are approved.

How to solve Subsequent Events under SA 560 questions

Use this order for any SA 560 question, whether it is a case study or a theory question.

1Mark the three dates in the question: balance sheet date, auditor's report date, date of issue of financial statements.
2Place the event on the timeline. Decide whether it falls in period 1, 2 or 3.
3Decide if the event is adjusting (condition existed at the balance sheet date) or non-adjusting (condition arose later).
4State the auditor's duty for that period: procedures in period 1; no duty to inquire in periods 2 and 3, but discuss with management and act if a fact becomes known.
5Say what management must do: adjust, disclose, amend the financial statements, or inform users.
6State the effect on the report: unmodified if properly handled. If a material misstatement is not corrected, the opinion is qualified when the effect is material but not pervasive, and adverse when it is material and pervasive.
7Write a one-line conclusion that answers exactly what was asked.

Quickest way: Timeline-and-type shortcut

When to use it: Use this for MCQs and for short case-based written answers when time is tight.

Draw a line with three dots: balance sheet date, report date, issue date. This takes five seconds.
Put a cross where the event happens. The segment tells you the duty.
Ask one question: did the condition exist at the balance sheet date? Yes means adjust. No means disclose.
In MCQs, eliminate options that say the auditor must actively search for facts after the report date. There is no such duty.
In written answers, use a format of Provision, Facts, Conclusion. Cite SA 560, apply it to the facts, and give the action in a clear final line to secure step marks.

Common mistakes in Subsequent Events under SA 560

Saying the auditor must keep searching for events until the financial statements are issued.
Students merge periods 1, 2 and 3 into one continuous duty.
Fix: Remember that active procedures are needed only up to the auditor's report date. After that, the auditor has no duty to inquire, though action is needed if a fact becomes known.
Treating every post-year-end event as adjusting.
Students focus on the timing and ignore whether the condition already existed.
Fix: Test the condition at the balance sheet date. A fire after year-end is non-adjusting. A customer's insolvency that proves an old debt is bad is adjusting.
Mixing up the date of the financial statements with the date of the auditor's report.
Both dates appear in the same question and look similar.
Fix: Write both dates on a timeline first. The first is the balance sheet date and the second is the signing date.
Forgetting that the auditor may ask management to inform them of facts arising after the report date.
Students think only of the auditor's actions.
Fix: Mention that the auditor may request management, through the engagement terms or written representations, to inform the auditor of such facts. Do not present this as a duty stated in SA 560. Then show that the auditor discusses the matter with management.
Saying the auditor must always withdraw the report when a post-issue fact is found.
Students overstate the consequence.
Fix: The auditor first discusses with management and those charged with governance. If financial statements are amended, the auditor audits the change and issues a new or amended report that includes an Emphasis of Matter or Other Matter paragraph referring to the note on the amendment and the earlier report. Management must inform those who received the earlier financial statements. If management does not act, the auditor takes steps to prevent reliance on the report.
Ignoring the effect on the opinion if management refuses to adjust or disclose.
Students stop after naming the type of event.
Fix: Always finish with the opinion. First ask whether the effect is material. If management does not correct a material misstatement (non-adjustment or non-disclosure), give a qualified opinion when it is material but not pervasive, and an adverse opinion when it is material and pervasive. Emphasis of Matter is not a substitute for modifying the opinion.

Worked examples

Example 1

The financial statements of Rao Ltd. are for the year ended 31 March 2027. The auditor signed the report on 20 May 2027. On 5 May 2027 the company learned that a major customer owing ₹12,00,000 at 31 March 2027 was declared insolvent. Management has not made any provision. Advise the auditor.

Show the solution

Dates: balance sheet date is 31 March 2027 and report date is 20 May 2027. The event on 5 May 2027 falls in period 1, before the report is signed.
Type of event: the insolvency of a customer after the balance sheet date normally confirms that the debt was already impaired at the balance sheet date. It is therefore an adjusting event.
Auditor's duty: under SA 560 the auditor must perform procedures to identify such events and evaluate whether they are properly reflected. Here the auditor should obtain evidence of the insolvency and the likely recovery.
Management's duty: provide for the doubtful debt, up to the amount judged irrecoverable, to the extent it is material.
Effect on the report: if management adjusts, an unmodified opinion is possible. If management refuses and the amount is material, the auditor expresses a qualified opinion, or an adverse opinion if the effect is material and pervasive.

Answer: This is a period 1 adjusting event. The auditor should ask management to provide for the debt of ₹12,00,000 (to the extent irrecoverable). If management refuses and the amount is material, the auditor modifies the opinion.

Example 2

An auditor signed the report on 25 May 2027. The financial statements were issued to members on 10 June 2027. On 2 June 2027 the auditor learns of a fraud that is material and affected the accounts for the year ended 31 March 2027. What must the auditor do?

Show the solution

Place the fact: the auditor learns of it after the report date and before issue of the financial statements. This is period 2. A fraud the auditor learns of is a fact, not an event. It affected the year-end accounts, so it may have changed the report had it been known earlier.
Duty: the auditor has no obligation to perform procedures after the report date. However, the auditor now knows a fact that may have caused the report to be different, so the auditor must discuss it with management and take appropriate action.
Discuss the matter with management and, where appropriate, those charged with governance. Determine whether the financial statements need amendment. If they do, inquire how management intends to address the matter in the financial statements.
If management amends the financial statements, the auditor carries out the necessary audit procedures on the amendment, and issues a new or revised auditor's report with a new date, which is not earlier than the date of approval of the amended financial statements.
The facts do not say whether management amends the financial statements, so do not assume either way. If management does not amend and the auditor believes they need amending, the action depends on whether the report has been provided to the entity.
Case 1: the report has not yet been provided to the entity. The auditor modifies the opinion (qualified or adverse, depending on materiality and pervasiveness) and then provides the report to the entity.
Case 2: the report has already been provided to the entity. The auditor notifies management and those charged with governance not to issue the financial statements to third parties before the amendments are made.
Case 3 applies only if management issues the financial statements without the needed amendments despite the auditor's notification. The stated facts do not tell you this. Only then does the auditor take appropriate action to prevent reliance on the auditor's report.

Answer: This is a period 2 matter. The auditor discusses with management and, where appropriate, those charged with governance, and inquires how management intends to address the matter in the financial statements. If the financial statements are amended, the auditor audits the amendment and issues a new report. If management does not amend: where the report has not yet been provided to the entity, the auditor modifies the opinion and then provides the report to the entity; where it has already been provided to the entity, the auditor notifies management and those charged with governance not to issue to third parties. Only if management issues the financial statements anyway, without amendment and despite the notification, does the auditor take action to prevent reliance on the report.

Exam tips

Draw the timeline first in every case question. It earns marks for structure and stops date confusion.
Learn the three periods by heart with the auditor's duty for each. Examiners often ask for these in a table-like answer.
In MCQs, watch for traps such as 'auditor must perform procedures after the date of issue'. That is wrong.
For adjusting versus non-adjusting questions, give one clear example of each. It strengthens a short answer.
End each written answer with the effect on the opinion. Many students lose the last mark by skipping this.

Practice questions from Completion and Review

Subsequent Events under SA 560: frequently asked questions

What is the difference between adjusting and non-adjusting subsequent events?

An adjusting event gives evidence of a condition that existed at the balance sheet date, so the amounts are changed. A non-adjusting event arises from a condition after that date, so it is disclosed only if material. SA 560 relies on the applicable financial reporting framework, such as AS 4 or Ind AS 10, to define these.

Does the auditor have to check for subsequent events after signing the report?

No. The auditor must perform procedures only up to the date of the auditor's report. After that, there is no duty to inquire, but the auditor must act if a fact becomes known that might have affected the report.

What if the auditor finds a fact after the financial statements are issued?

The auditor discusses the matter with management and those charged with governance, and considers if the financial statements need amendment. If they are amended, the auditor audits the change and issues a new or amended report. That report includes an Emphasis of Matter or Other Matter paragraph referring to the note on the amendment and the earlier report, and management must inform those who received the earlier financial statements. If management does not act, the auditor takes steps to prevent further reliance on the report.

Can the auditor date the report before the financial statements are approved?

No. Under SA 700 (Revised), the report date must not be earlier than the date on which the auditor has obtained sufficient appropriate evidence and the financial statements have been approved by those with recognised authority.